1. What are the major risks to the Zipcar concept?
Ans: The concept of Zipcar was simple was easy to copy and any player could enter into this market. The competitors were
- CommonAuto which started recently in Canada.
- Two west cost companies, Car-Sharing Inc, and Flexcar.
- Traditional rental cars like Avis, Hertz etc…
- Car Manufacturers themselves could enter into this market.
Since they were not the first one to bring this concept, it was a risk if any other players start their operation in the market that they select. Competitors like car manufacturers would have to invest little money to open such service and then Zipcar wont be able to match their investments.
None of the founders had any experience in successful business or car industry.
- What was zipcar’s major source of capital?
Ans: Zipcar initial investment came through friends and family, then they borrowed $50,000 from another classmate. But their major investment of $1.3 million came from a venture capitalist named Boston Community Venture Fund.
- Go to Exhibit 7. Calculate the survival breakeven for years 1 through 5. Show your work.
| Items | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| | | | | | |
| Income | 235438 | 678399 | 914663 | 1079788 | 1227715 |
| Fixed Cost | 177955 | 197532 | 228340 | 226734 | 235308 |
| Variable Cost | 87450 | 280068 | 381184 | 468591 | 533222 |
| Total Operating Expense | 265405 | 477600 | 609524 | 695325 | 768530 |
| | | | | | |
| VCRR | 37.14% | 41.28% | 41.67% | 43.40% | 43.43% |
| CFC | 177955 | 197532 | 228340 | 226734 | 235308 |
| Breakeven Revenue | 283113.3 | 336417.5 | 391494.6 | 400565.9 | 415974.2 |
Breakeven Revenue for first year should be $283,111.3 where as the revenue for that year was only $235,438. The company did not break even the first year, where as the second year the revenue was more that breakeven, so it did breakeven in the second year.
The calculation can be seen in the attached excel sheet.
Ans 4
| Items | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| | | | | | |
| Income | 235438 | 306069.4 | 397890.2 | 517257.3 | 672434.5 |
| Fixed Cost | 177955 | 197532 | 228340 | 226734 | 235308 |
| Variable Cost | 87450 | 113685 | 147790.5 | 192127.7 | 249765.9 |
| | | | | | |
| VCRR | 37.14% | 37.14% | 37.14% | 37.14% | 37.14% |
| CFC | 177955 | 197532 | 228340 | 226734 | 235308 |
| Breakeven Revenue | 283113.3 | 314258.9 | 363272.1 | 360717.1 | 374357.7 |
The first year breakeven revenue remains the same as before from ans 3, but for the 2nd year, the income is less than breakeven, so the company did not breakeven in 2nd year. It did in the 3rd year.
